What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2026-02-17 compared with 2025-02-11 · 419 added, 418 removed, 1167 unchanged (42% of the section changed)

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Report of Independent Registered Public Accounting Firm (PCAOB ID No.

Consolidated Balance Sheets as of January 3, 2025 , and D ecember 29, 2023

Consolidated Statements of Operations for the fiscal years ended January 3, 2025 , December 29, 2023 , and December 3 0, 2022

Consolidated Statements of Comprehensive Income for the fiscal years ended January 3, 2025 , December 29, 2023 , and December 3 0, 2022

Consolidated Statements of Equity for the fiscal years ended January 3, 2025 , December 29, 2023 , and December 3 0, 2022

Consolidated Statements of Cash Flows for the fiscal years ended January 3, 2025 , December 29, 2023 , and December 3 0, 2022

Consolidated Balance Sheets as of January 2 , 202 6 , and J anuary 3, 2025

Consolidated Statements of Operations for the fiscal years ended January 2 , 202 6 , January 3, 2025 , and December 2 9, 2023

Consolidated Statements of Comprehensive Income for the fiscal years ended January 2 , 202 6 , January 3, 2025 , and December 29, 2023

Consolidated Statements of Equity for the fiscal years ended January 2 , 202 6 , January 3, 2025 , and December 2 9, 2023

Consolidated Statements of Cash Flows for the fiscal years ended January 2 , 202 6 , January 3, 2025 , and December 29, 2023

Notes to Consolidated Financial Statements

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We have audited the accompanying consolidated balance sheets of Leidos Holdings, Inc.

and subsidiaries (the “Company”) as of January 3, 2025 and December 29, 2023, the related consolidated statements of operations, comprehensive income, equity, and cash flows, for the fiscal years ended January 3, 2025, December 29, 2023, and December 30, 2022, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 3, 2025 and December 29, 2023, and the results of its operations and its cash flows for the fiscal years ended January 3, 2025, December 29, 2023, and December 30, 2022, in conformity with accounting principles generally accepted in the United States of America.

and subsidiaries (the “Company”) as of January 2, 2026 and January 3, 2025, the related consolidated statements of operations, comprehensive income, equity, and cash flows, for each of the fiscal years ended January 2, 2026, January 3, 2025, and December 29, 2023 and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 2, 2026 and January 3, 2025, and the results of its operations and its cash flows for each of the fiscal years ended January 2, 2026, January 3, 2025, and December 29, 2023 in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of January 2, 2026, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 17, 2026, expressed an unqualified opinion on the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 3 to the financial statements, the Company has elected to change its method of accounting for cash in fiscal 2025.

Basis for Opinion

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.

Goodwill Valuation – Security Enterprise Solutions Reporting Unit - Refer to Notes 3 and 8 to the Financial Statements

Critical Audit Matter Description

The Company performed a quantitative impairment evaluation of the goodwill for the Security Enterprise Solutions reporting unit by comparing the estimated fair value of the reporting unit to its carrying value.

Estimating the fair value of a reporting unit requires the exercise of significant judgment and assumptions including judgments about expected future cash flows, weighted-average cost of capital, discount rates, expected long-term growth rates and operating margins as well as changes in the business environment.

Changes in these assumptions could have a significant impact on the fair value of the reporting unit, the amount of any goodwill impairment charge, or both.

The Company’s accounting policy is to test for impairment on the first day of the fourth quarter of each fiscal year and more frequently if events or circumstances indicate that the carrying value may not be recoverable.

As a result of the quantitative assessment, the Company concluded that the fair value of the Security Enterprise Solutions reporting unit exceeded the carrying value, which resulted in no impairment for the fiscal year ended January 3, 2025.

Leidos Holdings, Inc.

Annual Report

We identified goodwill for the Security Enterprise Solutions reporting unit as a critical audit matter due to the significant judgments made by management to estimate the fair value of the reporting unit and the difference between its fair value and carrying value.

Performing audit procedures to evaluate management’s estimate of the Security Enterprise Solutions reporting unit fair value required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the selection of the discount rate, terminal growth rate and forecasts of future revenues and cash flows for the Security Enterprise Solutions reporting unit included the following, among others:

u We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over the selection of the discount rate, terminal growth rate and management’s development of forecasted revenues, operating margins and cash flows.

u We evaluated management’s ability to accurately forecast future Security Enterprise Solutions reporting unit revenue and operating margins comparing actual results to management’s historical forecasts.

u We developed an independent estimate of the Security Enterprise Solutions reporting unit fair value using the income approach.

We utilized the historical results of the reporting unit and inspected third-party industry reports for the global aviation, maritime, and border security products and related services markets to develop projections.

Additionally, we developed the discount rate and terminal year growth rate with the assistance of our fair value specialists

u We developed an independent estimate of the Security Enterprise Solutions reporting unit fair value using the market approach.

We selected guideline peer companies and developed enterprise value multiples of revenues and earnings before interest, taxes, depreciation and amortization with the assistance of our fair value specialists.

u We calculated our independent expectation of the fair value of the reporting unit by weighting the results of the market and income approaches and compared the resulting fair value to the carrying value of the Security Enterprise Solutions reporting unit.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

Revenues – Refer to Notes 3 and 4 to the Financial Statements

Critical Audit Matter Description

The Company recognized certain customer contract revenue over time using a method that measures the extent of progress towards completion of a performance obligation, principally using a cost-input method (referred to as the cost-to-cost method).

The Company recognizes revenue on certain contracts with customers over time using a method that measures the extent of progress towards completion of a performance obligation, principally using a cost-input method (referred to as the cost-to-cost method).

Under the cost-to-cost method, revenue is recognized based on the proportion of total costs incurred to estimated total costs-at-completion (EAC).

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In addition, an EAC of a performance obligation includes future losses estimated to be incurred on onerous contracts, as and when known.

The accounting for these contracts involves judgment, particularly as it relates to the process of estimating total revenues and costs for the performance obligation.

Given the judgments necessary to determine whether multiple promises within a single contract represent a single performance obligation, whether or not the Company is acting as principal in the fulfillment of the identified performance obligations on certain contracts, and estimates of total revenues and costs for the performance obligations that recognize revenue using the cost-to-cost method, auditing such accounting conclusions and estimates required extensive audit effort due to the volume and complexity of these contracts and a high degree of auditor judgment when performing audit procedures and evaluating the results of those procedures.

The accounting for

Leidos Holdings, Inc.

Annual Report

these contracts involves judgment, particularly as it relates to the process of estimating total revenues and costs for the performance obligation.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to management’s conclusions regarding whether multiple promises within a single contract represent a single performance obligation, whether the Company is acting as a principal or an agent in fulfilling identified performance obligations on certain contracts, and estimates of total costs for the performance obligations that recognize revenue using the cost-to-cost method included the following, among others:

Our audit procedures related to management’s conclusions regarding the number of performance obligations within a single contract, the Company's position as an agent or principal for a performance obligation, and estimates of total revenues and costs for the performance obligations that recognize revenue using the cost-to-cost method included the following, among others:

u We tested the effectiveness of controls over contract revenue, including management’s controls over evaluating the revenue recognition methodology, initial setup of new contract arrangements, and estimates of total costs and revenues for identified performance obligations.

u We developed an expectation of revenue based on the Company’s historical performance and compared it to the recorded balance.

u We developed an expectation of revenue based on the Company’s historical margin performance and costs incurred in the current year, then compared it to the recorded balance.

u For a selection of contracts, we performed audit procedures based on certain characteristics of audit interest, which included some of the following:

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u Inspection of the executed contract to assess that the facts on which management’s conclusions were reached were consistent with the actual terms and conditions of the contract.

u Evaluation of the contract within the context of the revenue recognition model and that management’s conclusions were appropriate by evaluating the nature of the promises within the contract, the interrelationship of the promised services and/or products provided, the pattern by which obligations are fulfilled, the number of performance obligations identified, and which party is acting as principal in the fulfillment of the identified performance obligations.

u Evaluation of the contract within the context of the revenue recognition model to assess whether management’s conclusions were appropriate.

We evaluated the nature of the promises within the contract, the interrelationship of the promised services and/or products provided, the pattern by which obligations are fulfilled, the number of performance obligations identified, and whether or not the Company is acting as principal in the fulfillment of the identified performance obligations.

u Evaluation of the appropriateness and consistency of the methods and assumptions used by management to develop estimates of future revenues that will be recognized and costs that will be incurred.

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CONSOLIDATED BALANCE SHEETS

(in millions, except share and per share data)

2025 December 29,

(in millions, except share and par value data)

2026 January 3,

Cash and cash equivalents $ 1,108 $ 849

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Operating lease right-of-use assets, net 526 560

Deferred tax assets 48 203

Other long-term assets 344 321

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Operating lease liabilities 587 621

Deferred tax liabilities 221 2

Other long-term liabilities 268 315

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Stockholders’ equity:

Preferred stock, $ 0.0001 par value, 10,000,000 shares authorized and no shares issued and outstanding at January 3, 2025 and December 29, 2023

Common stock, $ 0.0001 par value, 500,000,000 shares authorized, 131,163,899 and 135,766,419 shares issued and outstanding at January 3, 2025, and December 29, 2023, respectively

Preferred stock, $ 0.0001 par value, 10,000,000 shares authorized and no shares issued and outstanding at January 2, 2026 and January 3, 2025

Common stock, $ 0.0001 par value, 500,000,000 shares authorized, 126,380,657 and 131,163,899 shares issued and outstanding at January 2, 2026, and January 3, 2025, respectively

Additional paid-in capital 319 1,112

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(in millions, except per share data)

2025 December 29,

2026 January 3,

2025 December 29,

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Operating income 2,109 1,827 621

Non-operating expense:

Non-operating income (expense):

Interest expense, net ( 203 ) ( 193 ) ( 212 )

Other income (expense), net

5 ( 6 ) ( 3 )

Income before income taxes 1,909 1,639 403

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Net income 1,462 1,251 208

net (loss) income attributable to non-controlling interest

net income (loss) attributable to non-controlling interest

Net income attributable to Leidos common stockholders $ 1,448 $ 1,254 $ 199

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(in millions)

2025 December 29,

2026 January 3,

2025 December 29,

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Foreign currency translation adjustments 66 ( 59 ) 34

Unrecognized (loss) gain on derivative instruments ( 4 ) ( 8 ) 54

Pension adjustments 1 ( 1 ) ( 20 )

Total other comprehensive (loss) income, net of taxes

Unrecognized loss on derivative instruments

( 4 ) ( 4 ) ( 8 )

Pension adjustments ( 2 ) 1 ( 1 )

Total other comprehensive income (loss), net of taxes

Comprehensive income 1,522 1,189 233

net (loss) income attributable to non-controlling interest

net income (loss) attributable to non-controlling interest

Comprehensive income attributable to Leidos common stockholders $ 1,508 $ 1,192 $ 224

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Net income — — 199 — 199 9 208

Other comprehensive loss, net of taxes

Other comprehensive income, net of taxes

— — — 25 25 — 25

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Balance at December 29, 2023 136 1,885 2,364 ( 48 ) 4,201 57 4,258

Net income — — 199 — 199 9 208

Other comprehensive income, net of taxes

Net income (loss) — — 1,254 — 1,254 ( 3 ) 1,251

Other comprehensive loss, net of taxes

— — — ( 62 ) ( 62 ) — ( 62 )

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Net capital distributions to non-controlling interest — — — — — ( 6 ) ( 6 )

Balance at December 29, 2023 136 1,885 2,364 ( 48 ) 4,201 57 4,258

Net income (loss) — — 1,254 — 1,254 ( 3 ) 1,251

Other comprehensive loss, net of taxes

Balance at January 3, 2025 131 1,112 3,410 ( 110 ) 4,412 48 4,460

Net income — — 1,448 — 1,448 14 1,462

Other comprehensive income, net of taxes

— — — 60 60 — 60

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(in millions)

2025 December 29,

2026 January 3,

2025 December 29,

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Proceeds from disposition of businesses 9 — 2

Net proceeds from sale of assets 2 — 6

Other 5 — ( 13 )

Net cash used in investing activities ( 405 ) ( 142 ) ( 211 )

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Effect of foreign exchange rate changes on cash and cash equivalents 13 ( 10 ) 6

Net increase (decrease) in cash, cash equivalents and restricted cash 156 245 ( 192 )

Net increase in cash, cash equivalents and restricted cash 213 199 267

Cash, cash equivalents and restricted cash at beginning of year 991 792 525

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(in millions)

2025 December 29,

2026 January 3,

2025 December 29,

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Headquartered in Reston, Virginia, with 47,000 global employees, Leidos’ customers include the U.S.

Department of Defense (“DoD”), the U.S.

Department of War (“DoW”), the U.S.

Intelligence Community, the U.S.

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and its consolidated subsidiaries.

During fiscal 2024, we completed a realignment of our segment and reporting structure, which resulted in the identification of four reportable segments:

Our business is aligned into four reportable segments:

National Security & Digital, Health & Civil, Commercial & International and Defense Systems.

We commenced operating and reporting under the new organizational structure effective the first day of fiscal 2024.

In addition, we separately present the unallocated costs associated with corporate functions as Corporate.

As a result of this change, prior year segment results and disclosures have been recast to reflect the current reportable segment structure.

We have an 88 % controlling interest in Mission Support Alliance, LLC (“MSA”), a joint venture with Centerra Group, LLC.

MSA’s contract ended on January 24, 2021.

We also have a 53 % controlling interest in Hanford Mission Integration Solutions, LLC (“HMIS”), the legal entity for the follow-on contract to MSA’s contract and a joint venture with Centerra Group, LLC and Parsons Government Services, Inc.

We consolidate the financial results for MSA and HMIS into our consolidated financial statements.

Additionally, we separately present the unallocated costs associated with corporate functions as Corporate.

We have a 53 % controlling interest in Hanford Mission Integration Solutions, LLC (“HMIS”), the legal entity for the follow-on contract to Mission Support Alliance, LLC's ("MSA") contract and a joint venture with Centerra Group, LLC and Parsons Government Services, Inc.

In fiscal 2025, we dissolved our controlling interest in MSA.

We consolidate the financial results for HMIS into our consolidated financial statements.

The consolidated financial statements also include the balances of all voting interest entities in which Leidos has a controlling voting interest (“subsidiaries”) and a variable interest entity (“VIE”) in which Leidos is the primary beneficiary.

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Certain amounts in the prior year financial statements have been reclassified to conform to the current year presentation.

We combined "Deferred tax liabilities" into "Other long-term liabilities" on the consolidated balance sheets.

We disaggregated "Deferred tax assets" from "Other long-term assets" and "Deferred tax liabilities" from "Other long-term liabilities" on the consolidated balance sheets.

Additionally, we combined "Net proceeds from sale of assets" into "Other" within net cash used in investing activities on the consolidated statements of cash flows.

We changed our Cash and Cash Equivalents policy to exclude outstanding payments from “Cash and cash equivalents” on the consolidated balance sheets.

Prior year financial information has been updated to conform to our current presentation on the consolidated balance sheet and consolidated statement of cash flows (See "Note 3—Summary of Significant Accounting Policies").

Note 2—Accounting Standards

ACCOUNTING STANDARDS UPDATES ADOPTED

ASU 2023-07 Segment Reporting

In November 2023, the FASB issued ASU 2023-07 to improve reportable segment disclosure requirements.

This update requires companies to disclose significant segment expense categories that are regularly provided to the chief operating decision maker (“CODM”) on an interim and annual basis and requires disclosures about a reportable segment’s profit or loss and assets that are currently required annually to be made on an interim basis.

Companies must also disclose how segment measures of profit or loss are used by the CODM.

The amendments in this update are effective for public entities on a retrospective basis for annual periods beginning after December 15, 2023, and interim periods beginning after December 15, 2024.

Effective fiscal 2024, we adopted the requirements of ASU 2023-07 using the retrospective method (See "Note 20 Business Segments").

The adoption did not have an impact to our financial position, results of operations and earnings per share.

ASU 2023-09 Income Taxes

In December 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-09, to enhance the transparency and usefulness of income tax disclosures.

The update requires enhancements to the annual rate reconciliation, including disclosure of specific categories and additional information for reconciling items meeting a quantitative threshold.

The update also requires disclosure of income taxes paid disaggregated by federal, state and foreign taxes, and individual jurisdictions meeting a quantitative threshold.

The amendments in this update are effective for public business entities for annual periods beginning after December 15, 2024, and may be adopted on a prospective or retrospective basis.

Effective fiscal 2025, we adopted the requirements of ASU 2023-09, using the prospective method (See "Note 18—Income Taxes").

The adoption did not have a material impact on our consolidated financial statements and related disclosures.

Leidos Holdings, Inc.

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ACCOUNTING STANDARDS UPDATES ISSUED BUT NOT YET ADOPTED

ASU 2023-09 Income Taxes

In December 2023, the FASB issued ASU 2023-09, to enhance the transparency and usefulness of income tax disclosures.

The update requires enhancements to the annual rate reconciliation, including disclosure of specific categories and additional information for reconciling items meeting a quantitative threshold.

The update also requires disclosure of income taxes paid disaggregated by federal, state and foreign taxes, and individual jurisdictions meeting a quantitative threshold.

The amendments in this update are effective for public business entities for annual periods beginning after December 15, 2024, and may be adopted on a prospective or retrospective basis.

Early adoption is permitted.

We are currently evaluating the impacts of this update and plan to adopt these amendments using the prospective approach for annual disclosures in fiscal 2025.

ASU 2024-03 Disaggregation of Income Statement Expenses

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We are currently evaluating the impacts of this update and plan to adopt these amendments for annual disclosures in fiscal 2027 and interim disclosures in fiscal 2028.

ASU 2025-06 Intangibles - Goodwill and Other-Internal-Use Software

In September 2025, the FASB issued ASU 2025-06, which amends certain aspects of the accounting and disclosure of Internal use software costs.

Current guidance requires capitalization of internal-use software development costs depending on the nature of the costs and the project stage during which they occur.

The amendments in this update remove references to prescriptive and sequential software development stages and require entities to start capitalizing software development costs when a) management authorizes and commits to funding the software project, and b) it is probable that the project will be completed, and the software will be used to perform the intended function.

The amendments in this update are effective for public business entities for annual periods beginning after December 15, 2027, including interim periods within those annual reporting periods, and may be adopted on a prospective, modified or retrospective basis.

Early adoption is permitted.

We are currently evaluating the impacts of this update and plan to adopt these amendments using the prospective approach in fiscal 2026.

We do not expect them to have a material impact on our consolidated financial statements and related disclosures.

Note 3—Summary of Significant Accounting Policies

REPORTING PERIODS

Leidos’ fiscal year ends on the Friday nearest the end of December.

Fiscal 2024 ended January 3, 2025, fiscal 2023 ended December 29, 2023, and fiscal 2022 ended December 30, 2022.

Fiscal 2024 included 53 weeks, fiscal 2023 and 2022 both included 52 weeks.

Our fiscal year ends on the Friday nearest the end of December.

Fiscal 2025 ended January 2, 2026, fiscal 2024 ended January 3, 2025, and fiscal 2023 ended December 29, 2023.

Fiscal 2025 and 2023 both included 52 weeks and fiscal 2024 included 53 weeks.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingencies at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods.

Management evaluates these estimates and assumptions on an ongoing basis, including those relating to estimated profitability of long-term contracts, indirect billing rates, allowances for doubtful accounts, inventories, right-of-use (“ROU”) assets and lease liabilities, fair value and impairment of intangible assets and goodwill, income taxes, pension benefits, stock-based compensation expense and contingencies.

Management evaluates these estimates and assumptions on an ongoing basis, including those relating to estimated profitability of long-term contracts, indirect billing rates, allowances for credit losses, inventories, right-of-use (“ROU”) assets and lease liabilities, fair value and impairment of intangible assets and goodwill, income taxes, pension benefits, stock-based compensation expense and contingencies.

These estimates have been prepared by management on the basis of the most current and best available information;

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Our operating cycle for long-term contracts may be greater than one year and is measured by the average time intervening between the inception and the completion of those contracts.

BUSINESS COMBINATIONS, INVESTMENTS AND VARIABLE INTEREST ENTITIES

Business Combinations

The accounting for business combinations requires management to make judgments and estimates related to the fair value of assets acquired, including the identification and valuation of intangible assets, as well as liabilities and contingencies assumed.

Such judgments and estimates directly impact the amount of goodwill recognized in connection with an

Leidos Holdings, Inc.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

BUSINESS COMBINATIONS, INVESTMENTS AND VARIABLE INTEREST ENTITIES

Business Combinations

Such judgments and estimates directly impact the amount of goodwill recognized in connection with an acquisition.

Estimating the fair value of acquired assets and assumed liabilities, including intangibles, requires judgments about expected future cash flows, weighted-average cost of capital, discount rates and expected long-term growth rates.

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Equity investments in entities over which we do not have the ability to exercise significant influence and whose securities do not have a readily determinable fair value are carried at cost or cost net of other-than-temporary impairments.

Investments are assessed for impairment whenever events or change in circumstances indicate that the carrying value may not be recoverable.

Variable Interest Entities

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Costs associated with exit or disposal activities, including the related one-time and ongoing involuntary termination benefits, are included as “Acquisition, integration and restructuring costs” on the consolidated statements of operations.

REVENUE RECOGNITION

Our revenues from contracts with customers are from offerings including trusted mission artificial intelligence, cyber operations, digital modernization, mission software systems, integrated systems, mission operations, and rapid prototyping and manufacturing, primarily with the U.S.

Our revenues from contracts with customers are from offerings including space and maritime;

energy infrastructure;

digital modernization and cyber;

mission software;

and managed health services, primarily with the U.S.

government and its agencies.

We also serve various state and local governments, foreign governments and commercial customers.

We perform under various types of contracts, which include firm-fixed-price (“FFP”), time-and-materials (“T&M”), fixed-price-level-of-effort (“FPLOE”), cost-plus-fixed-fee (“CPFF”), cost-plus-award-fee, cost-plus-incentive-fee and fixed-price-incentive-fee (“FPIF”) contracts.

We perform under various types of contracts, which include firm-fixed-price (“FFP”), time-and-materials (“T&M”), fixed-price-level-of-effort (“FPLOE”), cost-plus-fixed-fee (“CPFF”), cost-plus-award-fee, cost-plus-incentive-fee ("CPIF") and fixed-price-incentive-fee (“FPIF”) contracts.

To determine the proper revenue recognition, we first evaluate whether we have a duly approved and enforceable contract with a customer, in which the rights of the parties and payment terms are identified, and collectability is probable.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

If contract modifications add distinct goods or services and increase the contract value by an amount that reflects the standalone selling price, those modifications are accounted for as separate contracts.

Most of our contracts contain multiple promises including the design and build of software-based systems, integration of hardware and software solutions, running and maintaining of IT infrastructure and procurement services.

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government contracts, the customer typically controls the work-in-process as evidenced by rights to payment for work performed to date plus a reasonable profit to deliver products or services for which we do not have an alternate use.

Anticipated losses on service-based revenue contracts are recognized when incurred over the contract term while the full amount of anticipated losses on other contracts are recognized during the period in which the losses are determined.

Anticipated losses on service-based revenue contracts are recognized when incurred over the period of performance while the full amount of anticipated losses on other contracts are recognized during the period in which the losses are determined.

In certain product sales, where the products have an alternate use, revenue is recognized at a point in time when the customer takes control of the asset usually denoted by possession, transfer of legal title and acceptance by the customer.

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government contracts, including indirect costs, are subject to audit and adjustment by the Defense Contract Audit Agency (“DCAA”) (see “Note 21—Commitments and Contingencies”).

Pre-contract Costs

Certain eligible costs incurred prior to the start of a project are deferred as assets when we are required to incur costs prior to contract execution in order to be able to perform on the contract and it is probable that we will recover the costs when the contract is issued.

Pre-contract costs are amortized over the requisite service period for which the cost relates.

Transition Costs

Under certain service contracts, costs are incurred at the beginning of the contract to transition services, employees, and equipment to or from the customer or from a prior contractor.

These costs are generally capitalized as deferred assets and amortized on a straight-line basis over the anticipated term of the contract or a specified period of performance, including unexercised option periods that are reasonably certain of being exercised.

Fulfillment Costs

Contract fulfillment costs include costs incurred prior to the commencement of service to transition services, employees, and equipment to or from the customer or from a prior contractor.

Eligible contract fulfillment costs are deferred and recognized on a straight-line basis over the anticipated term of the contract or specified period of performance.

Project Assets

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(in millions, except for per share amounts)

2025 December 29,

2026 January 3,

2025 December 29,

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Impact on diluted EPS attributable to Leidos common stockholders $ 0.49 $ 0.17 $ 0.22

The unfavorable impact for fiscal 2024, included $ 40 million in write-downs on programs within our UK operations related to cost increases and schedule delays.

The impact on diluted earnings per share (“EPS”) attributable to Leidos common stockholders is calculated using our statutory tax rate.

Leidos Holdings, Inc.

Annual Report

LEIDOS HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Revenue Recognized from Prior Obligations

During fiscal 2025, 2024 and 2023, revenue recognized from performance obligations satisfied in previous periods was $ 41 million, $ 13 million and $ 8 million, respectively.

The changes primarily relate to revisions of variable consideration, including award and incentive fees, and revisions to estimates at completion resulting from changes in contract scope, mitigation of contract risks or due to true-ups of contract estimates at the end of contract performance.

The changes primarily relate to revisions of variable consideration, including award and incentive fees, and revisions to estimates at completion resulting from changes in contract scope, mitigation of contract risks or true-ups of contract estimates at the end of contract performance.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

We classify indirect costs incurred within or allocated to our U.S.

government customers as overhead (included in “Cost of revenues”) or general and administrative expenses in the same manner as such costs are defined in our disclosure statements under U.S.

government customer contracts as overhead (included in “Cost of revenues”) or general and administrative expenses in the same manner as such costs are defined in our disclosure statements under U.S.

government Cost Accounting Standards.

Selling, general and administrative expenses include general and administrative, bid and proposal, company-funded research and development expenses, and legal fees and settlements.

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Annual Report

LEIDOS HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We conduct research and development activities under customer-funded contracts and with company-funded research and development funds.

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Such provision differs from the amounts currently payable because certain items of income and expense are recognized in different reporting periods for financial reporting purposes than for income tax purposes.

We record liabilities for uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

We record liabilities for uncertain tax positions in accordance with Accounting Standards Codification ("ASC") 740, Accounting for Income Taxes, on the basis of a two-step process in which we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

We recognize interest and penalties related to uncertain tax positions in our income tax expense.

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Our cash equivalents are primarily comprised of investments in several large institutional money market accounts, with original maturity of three months or less.

Outstanding payments are included within “Cash and cash equivalents” and “Accounts payable and accrued liabilities” correspondingly on the consolidated balance sheets.

At January 3, 2025, and December 29, 2023, $ 94 million and $ 136 million, respectively, of outstanding payments were included within “Cash and cash equivalents.”

Effective fiscal 2025, we changed our policy to exclude outstanding payments from “Cash and cash equivalents” on the consolidated balance sheets.

To reflect the change in accounting policy, we recast "Cash and cash equivalents" and "Accounts payable and accrued liabilities" on the consolidated balance sheet as of January 3, 2025, reducing both balances by $ 94 million from the previously reported amounts.

The recast of the consolidated statement of cash flows for the year ended January 3, 2025, and December 29, 2023, resulted in an increase of $ 43 million and $ 22 million, respectively, to net cash provided by operations.

We believe this presentation enhances the usefulness of financial reporting and enhances comparability to align with industry practice.

There was no impact to our consolidated statements of operations, including EPS, consolidated statements of comprehensive income, or consolidated statements of equity.

All periods presented have been adjusted.

RESTRICTED CASH

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Restricted cash balances are included within “Other current assets” on the consolidated balance sheets.

Our restricted cash balances were $ 141 million and $ 151 million at January 3, 2025, and December 29, 2023, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Our restricted cash balances were $ 96 million and $ 142 million at January 2, 2026, and January 3, 2025, respectively.

Receivables include amounts billed and currently due from customers, amounts billable where the right to consideration is unconditional and amounts unbilled.

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Cost-reimbursable and T&M contracts are generally billed as costs are incurred.

FFP contracts are billed either based on milestones, which are the achievement of specific events as defined in the contract, or based on progress payments, which are interim payments up to a designated amount of costs incurred as work progresses.

FFP contracts are billed either based on milestones, which are the achievement of specific events as defined in the contract, or based on progress payments, which

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

are interim payments up to a designated amount of costs incurred as work progresses.

On certain contracts, the customer withholds a certain percentage of the contract price (retainage).

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government, we do not have exposure to material credit risk.

We manage our credit risk related to derivatives through the use of multiple counterparties with high credit standards.

We managed our credit risk related to derivatives through the use of multiple counterparties with high credit standards.

Inventories are valued at the lower of cost or estimated net realizable value.

1 unchanged sentence

Work-in-process inventory may include material costs, labor and allocable overhead costs.

The majority of finished goods inventory consists of technology and security products, inspection systems, baggage scanning equipment and small glide munitions.

The majority of finished goods inventory consists of technology and security products, inspection systems and baggage scanning equipment.

Inventory is evaluated against historical or planned usage to determine appropriate provisions for obsolete inventory.

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Our policy is to perform our annual goodwill impairment evaluation as of the first day of the fourth quarter of our fiscal year.

During fiscal 2024 and 2023, we had eight and seven reporting units, respectively, for the purpose of testing goodwill for impairment.

Goodwill is evaluated for impairment either under a qualitative assessment option or a quantitative approach, which depends on the facts and circumstances of a reporting unit, consideration of the excess of a reporting unit’s fair value over its carrying amount in previous assessments and changes in business environment.

During fiscal 2025 and 2024, we had eight reporting units for the purpose of testing goodwill for impairment.

Goodwill is evaluated for impairment either under a qualitative or a quantitative approach, depending on the facts and circumstances of a reporting unit, consideration of the excess of a reporting unit’s fair value over its carrying amount in previous assessments and changes in business environment.

When performing a qualitative assessment, we consider factors including, but not limited to, current macroeconomic conditions, industry and market conditions, cost factors, financial performance and other relevant events to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value.

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The impairment loss is recognized for the amount by which the carrying value exceeds its fair value.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We estimate the fair value of each reporting unit using Level 3 inputs when a quantitative analysis is performed.

These analyses rely on significant judgments and assumptions about expected future cash flows, weighted-average cost of capital, discount rates, expected long-term growth rates, operating margins and selection of guideline public companies.

These analyses rely on significant judgments and assumptions including, but not limited to expected future cash flows, weighted-average cost of capital, discount rates, expected long-term growth rates, operating margins and selection of guideline public companies.

INTANGIBLE ASSETS

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Program intangible assets are amortized over their respective estimated useful lives in proportion to the pattern of economic benefit based on expected future discounted cash flows.

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Customer relationships and software and technology intangible assets are amortized either on a straight-line basis over their estimated useful lives or over their respective estimated useful lives in proportion to the pattern of economic benefit based on expected future discounted cash flows, as deemed appropriate.

Backlog intangible assets are amortized on a straight-line basis over their estimated useful lives.

Intangible assets with finite lives are amortized over the following periods:

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Construction-in-progress (“CIP”) is used to accumulate all costs for projects that are not yet complete.

CIP balances are transferred to the appropriate asset account when the asset is capitalized and ready for its intended use.

CIP balances are transferred to the appropriate asset account when the asset is ready for its intended use.

When assets are sold or otherwise disposed of, the cost and related accumulated depreciation or amortization is removed from the accounts and any resulting gain or loss is recognized.

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We evaluate our long-lived assets for potential impairment whenever there is evidence that events or changes in circumstances indicate that the carrying value may not be recoverable and the carrying value of the asset exceeds its estimated fair value.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We have facilities and equipment lease arrangements.

An arrangement is determined to be a lease at inception if it conveys the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration.

Right-of-use (“ROU”) assets represent the right to use an underlying asset over the lease term and lease liabilities represent the obligation to make lease payments arising from the lease.

ROU assets and lease liabilities are recorded on the consolidated balance sheet at lease commencement date based on the present value of the future minimum lease payments over the lease term.

ROU assets represent the right to use an underlying asset over the lease term and lease liabilities represent the obligation to make lease payments arising from the lease.

ROU assets and lease liabilities are recorded on the consolidated balance sheet at the lease commencement date based on the present value of the future minimum lease payments over the lease term.

We generally do not know the discount rate implicit in our leases;

therefore, the discount rate used is our incremental borrowing rate which is determined based on the rate of interest that we would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term.

A ROU asset is initially measured by the present value of the remaining lease payments, plus initial direct costs and prepaid lease payments, less any lease incentives received before commencement.

An ROU asset is initially measured by the present value of the remaining lease payments, plus initial direct costs and prepaid lease payments, less any lease incentives received before commencement.

The remaining lease cost is allocated over the remaining lease term on a straight-line basis unless another systematic or rational basis is more representative of the pattern in which the underlying asset is expected to be used.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Certain facility leases contain options to renew or extend the terms of the lease which are included in the determination of the ROU assets and lease liabilities when it is reasonably certain that we will exercise the option.

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Variable lease payments that depend on an index or a rate are included in the determination of ROU assets and lease liabilities using the index or rate at the lease commencement date, whereas variable lease payments that do not depend on an index or rate are recorded as lease expense in the period incurred.

At January 3, 2025, certain of the Company’s equipment leases include residual value guarantees.

We use the practical expedient to not separate non-lease components from lease components and instead account for both components as a single lease.

At January 2, 2026, some of the Company’s equipment leases include residual value guarantees.

We use the practical expedient to account for lease and non-lease components together as a single lease.

The practical expedient is applied to all material classes of leased assets except for aircraft, for which we account for the lease component and non-lease component separately.

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We account for them as one unit of account if the timing and pattern of transfer is identical for both the lease and the non-lease components and the lease component would be classified as an operating lease if accounted for separately.

If both criteria are met and the predominant component is a lease, then the entire arrangement will be accounted for in accordance with ASC 842.

If both criteria are met and the predominant component is a lease, then the entire arrangement will be accounted for in accordance with ASC 842, Leases.

If we account for an arrangement both as a lease and non-lease component, then the allocation of consideration for each component will be based on the relative standalone sales price.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FAIR VALUE MEASUREMENTS

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observable inputs such as quoted prices in active markets (Level 1);

inputs other than quoted prices in active markets for identical assets or liabilities that are observable either directly or indirectly or quoted prices that are not active (Level 2);

inputs other than quoted prices in active markets for identical or similar assets or liabilities that are observable either directly or indirectly or quoted prices that are not active (Level 2);

and unobservable inputs in which there is little or no market data (e.g., discounted cash flow and other similar pricing models), which requires us to develop our own assumptions about the assumptions that market participants would use in pricing the asset or liability (Level 3).

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The fair value of financial instruments is determined based on quoted market prices, if available, or management’s best estimate (see “Financial Instruments” below).

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Management evaluates its investments for impairment at each balance sheet date.

When testing long-term investments for recovery of carrying value, the fair value of long-term investments is determined using various valuation techniques and factors, such as market prices of comparable companies (Level 2 input) and discounted cash flow models (Level 3 input).

If management determines that an other-than-temporary decline in the fair value of an investment has occurred, an impairment loss is recognized to reduce the investment to its estimated fair value.

The income approach, which generally includes Level 2 or Level 3 inputs, is applied to measure the fair value of financial instruments for which there is not an observable market.

Our non-financial instruments measured at fair value on a non-recurring basis include goodwill, indefinite-lived intangible assets and long-lived tangible assets.

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These transactions include sales or purchase contracts denominated in foreign currencies and exposure to changing interest rates.

We manage our risk to changes in interest rates and foreign currency exchange rates through the use of derivative instruments.

For variable rate borrowings, we use fixed interest rate swaps, effectively converting a portion of the variable interest rate payments to fixed interest rate payments.

These swaps are designated as cash flow hedges.

The fair value of these interest rate swaps is determined based on observed values for the underlying interest rates (Level 2).

We enter into foreign currency forward contracts in order to mitigate fluctuations in our earnings and cash flows due to changes in foreign currency exchange rates.

The foreign currency forward contracts are not designated as hedges and hedge accounting does not apply.

We do not hold derivative instruments for trading or speculative purposes.

We may elect to manage our risk to changes in interest rates and foreign currency exchange rates through the use of derivative instruments.

For variable rate borrowings, we used fixed interest rate swaps, effectively converting a portion of the variable interest rate payments to fixed interest rate payments.

These swaps were designated as cash flow hedges.

The fair value of these interest rate swaps was determined based on observed values for the underlying interest rates (Level 2).

Our defined benefit plan assets consist of investments in pooled funds that contain investments with values based on quoted market prices, but for which the pools are not valued on a daily quoted market basis (Level 2).

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The fair value of performance-based stock awards with market conditions is based on using a Monte Carlo simulation.

The fair value of stock option awards granted is based on using the Black-Scholes-Merton option pricing model.

The estimation of stock option fair value requires management to make estimates and judgments about, among other things, employee exercise behavior, forfeiture rates and the expected volatility of Leidos common stock over the expected option term.

The Black-Scholes-Merton option pricing model is used to estimate the fair value of stock option awards.

The model requires management to make estimates about, among other things, employee exercise behavior, forfeiture rates and the expected volatility of Leidos common stock over the expected option term.

These judgments directly affect the amount of compensation expense that will ultimately be recognized.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOREIGN CURRENCY

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As of January 2, 2026, we had $ 18.5 billion of RPO and expect to recognize approximately 65 % and 82 % over the next 12 months and 24 months, respectively, with the remaining to be recognized thereafter.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DISAGGREGATION OF REVENUES

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Total $ 7,563 $ 5,053 $ 2,312 $ 2,179 $ 17,107

Year Ended December 29, 2023

(in millions)

National Security & Digital

Year Ended January 3, 2025

(in millions) National Security & Digital

Health & Civil

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Total $ 7,142 $ 4,202 $ 2,116 $ 1,879 $ 15,339

(1) Includes federal government agencies other than the DoD and U.S.

(1) Includes federal government agencies other than the DoW and U.S.

Intelligence Community, as well as state and local government agencies.

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The majority of our revenues are generated from U.S.

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Total $ 7,563 $ 5,053 $ 2,312 $ 2,179 $ 17,107

Year Ended December 29, 2023

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Year Ended January 3, 2025

(in millions)

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Total $ 7,563 $ 5,053 $ 2,312 $ 2,179 $ 17,107

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year Ended December 29, 2023

Year Ended January 3, 2025

(in millions)

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export control regulations, could have an adverse impact on our business with the U.S.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In some countries, there is an increased chance for economic, legal or political changes that may adversely affect the performance of our services, sales of products or repatriation of profits.

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Contract assets consist of unbilled receivables, which is the amount of revenue recognized that exceeds the amount billed to the customer.

Unbilled receivables exclude amounts billable where the right to consideration is solely subject to the passage of time.

Unbilled receivables exclude amounts billable where the right to consideration is unconditional and not billed.

Contract liabilities consist of deferred revenue, which represents cash advances received prior to performance for programs and billings in excess of revenue recognized.

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Balance sheet line item January 2,

2025 December 29,

2026 January 3,

Contract assets - current:

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(1) Certain contracts record revenue on a net contract basis, and therefore, the respective deferred revenue balance will not fully convert to revenue.

The decrease in unbilled receivables was primarily due to the timing of billings, partially offset by revenue recognized on certain contracts during the period.

The decrease in deferred revenue was primarily due to the timing of advanced payments and revenue recognized during the period.

The increase in unbilled receivables was primarily due to revenue recognized on certain contracts, partially offset by the timing of billings on certain contracts.

The increase in deferred revenue was primarily due to the timing of advanced payments from customers, offset by revenue recognized during the period.

Revenue recognized during fiscal 2025 and 2024 of $ 233 million and $ 278 million, respectively, was included as a contract liability at January 3, 2025, and December 29, 2023, respectively.

There were no impairment losses recognized on contract assets during fiscal 2025, 2024 and 2023.

Note 5—Acquisitions and Divestitures

We may acquire businesses as part of our growth strategy to provide new or enhance existing capabilities and offerings to customers.

During fiscal 2025, we completed the acquisition of Savanna Industries, Inc.

("Kudu Dynamics").

Kudu Dynamics Acquisition

On May 23, 2025 (the "Purchase Date"), we completed the acquisition of Kudu Dynamics for a final purchase consideration of $ 293 million, net of $ 29 million of cash acquired.

The Kudu Dynamics business provides artificial intelligence enabled cyber capabilities for defense, intelligence and homeland security customers.

The preliminary goodwill recognized of $ 231 million represents intellectual capital and the acquired assembled workforce, neither of which qualify for recognition as a separate intangible asset.

All of the goodwill recognized is tax deductible.

Leidos Holdings, Inc.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Revenue recognized during fiscal 2024 and 2023 of $ 278 million and $ 232 million, respectively, was included as a contract liability at December 29, 2023, and December 30, 2022, respectively.

There were no impairment losses recognized on contract assets during fiscal 2024, 2023 and 2022.

Note 5—Acquisitions and Divestitures

We may acquire businesses as part of our growth strategy to provide new or enhance existing capabilities and offerings to customers.

During fiscal 2022, we completed the acquisition of Cobham Aviation Services Australia’s Special Mission business (“Cobham Special Mission”).

Cobham Special Mission Acquisition

On October 30, 2022 (the “Agreement Date”), we completed the acquisition of Cobham Special Mission for purchase consideration of $ 298 million Australian dollars, net of $ 10 million of Australian dollars acquired, or $ 192 million United States dollars, net of $ 6 million of cash acquired.

Cobham Special Mission provides airborne border surveillance and search and rescue services to the Australian Federal Government.

For fiscal 2024, 2023 and 2022, $ 128 million, $ 115 million and $ 21 million, respectively, of revenues related to the Cobham Special Mission acquisition were recognized within the Commercial & International reportable segmen t.

The following table summarizes the final fair value of intangible assets acquired at the Purchase Date and the related weighted average amortization period:

Weighted Amortization Period Fair Value

(in millions)

Programs 7 $ 60

As of January 2, 2026 we had not finalized the determination of fair values allocated to assets and liabilities, including, but not limited to, accounts receivables, accounts payable and accrued liabilities and other long-term liabilities.

For fiscal 2025, $ 60 million of revenues related to Kudu Dynamics were recognized within the National Security & Digital reportable segment.

Integration Costs

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(in millions) January 2,

2025 December 29,

2026 January 3,

2025 December 29,

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$ 4 $ 10 $ 19

These integration costs have been primarily recorded within Corporate and presented in “Acquisition, integration and restructuring costs” on the consolidated statement of operations.

Immaterial Divestiture

On October 20, 2023, we disposed of an immaterial business within our Defense Solutions reportable segment.

These integration costs have been recorded across our reportable segments and to Corporate and presented in “Acquisition, integration and restructuring costs” on the consolidated statement of operations.

On October 31, 2025, the Company completed the divestiture of an immaterial business not aligned to the Company's long term strategy within the Commercial & International reportable segment.

The final sales price was approximately $ 14 million and net assets of $ 9 million were divested as a result of the transaction.

On October 20, 2023, we disposed of an immaterial business within our Defense Systems reportable segment.

The final sales price was approximately $ 2 million and net assets of $ 7 million were divested as a result of the transaction.

Note 6—Receivables

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(in millions)

2025 December 29,

2026 January 3,

Billed and billable receivables $ 1,828 $ 1,820

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(in millions)

2025 December 29,

2026 January 3,

Raw materials $ 253 $ 217

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Note 8—Goodwill and Intangible Assets

During fiscal 2024, the Company completed a business realignment, which resulted in identification of new reportable segments.

The Company commenced operating and reporting under the new organizational structure effective the first day of fiscal 2024 (see "Note 20—Business Segments").

Goodwill was allocated to the new reporting units within our reportable segments based on a relative fair value approach.

The following table presents changes in the carrying amount of goodwill by reportable segment:

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$ 2,758 $ 1,366 $ 800 $ 1,188 $ 6,112

Goodwill impairment — — ( 596 ) — ( 596 )

Acquisitions of businesses (1)

— — ( 4 ) — ( 4 )

Foreign currency translation adjustments — — ( 28 ) — ( 28 )

Goodwill at December 29, 2023 (2)

Goodwill at January 3, 2025 (1)

2,758 1,366 772 1,188 6,084

Acquisition of a business 231 — — — 231

Divestiture of a business — — ( 7 ) — ( 7 )

Foreign currency translation adjustments — — 34 — 34

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$ 2,989 $ 1,366 $ 799 $ 1,188 $ 6,342

(1) Adjustment to goodwill resulting from a measurement period purchase accounting adjustment.

(1) Carrying amount includes accumulated impairment loss of $ 596 million within the Commercial & International segment.

Operations of the Security Enterprise Solutions (“SES”) reporting unit rely heavily on the sales and servicing of security and detection products, which prior to fiscal 2024, have been negatively impacted due to delays in airline travel infrastructure projects as customer budgets recover from the pandemic.

During fiscal 2023, the SES reporting unit refined its portfolio and made strategic business decisions to exit certain product offerings, and cease operations in certain countries in order to align the operations of the reporting unit with its strategic business plan.

These decisions, along with the delays in airline travel infrastructure projects and higher than anticipated servicing costs, contributed to a significant reduction in the reporting unit’s forecasted revenue and cash flows.

Operations of the Security Enterprise Solutions (“SES”) reporting unit rely heavily on the sales and servicing of security and detection products.

In fiscal 2023, SES restructured its portfolio by discontinuing select product offerings and ceasing operations in certain countries to better align with its strategic plan.

These changes, along with delays in airline travel infrastructure projects and higher than anticipated servicing costs, contributed to a significant reduction in the reporting unit’s forecasted revenue and cash flows.

As a result, in fiscal 2023, we conducted a quantitative goodwill impairment analysis and our estimates led us to determine that the carrying value of the SES reporting unit exceeded its estimated fair value (see “Note 11—Fair Value Measurements”).

Accordingly, we recognized a non-cash goodwill impairment charge of $ 596 million at the SES reporting unit as of December 29, 2023.

The impairment was recorded within the Commercial & International reportable segment in the consolidated statements of operations.

In the fourth quarter of fiscal 2023, we performed a second quantitative analysis for the SES reporting unit and concluded that no incremental impairment was necessary as the fair value of the reporting unit exceeded the carrying value.

In the fourth quarter of fiscal 2024, we performed a quantitative analysis for the SES reporting unit and concluded that no further impairment was necessary as the fair value of the reporting unit exceeded the carrying value.

We recorded a non-cash goodwill impairment charge of $ 596 million for the SES reporting unit as of fiscal 2023, within the Commercial & International reportable segment.

In the fourth quarter of fiscal 2025 and 2024, we performed a quantitative analysis for the SES reporting unit and concluded that no further impairment was necessary as the fair value of the reporting unit exceeded the carrying value.

In the fourth quarter of fiscal 2025, 2024 and 2023, we performed a qualitative analysis for certain reporting units which determined that it was more likely than not that the fair values of these reporting units were in excess of the individual reporting units’ carrying values.

In the event that there are significant unfavorable changes to the forecasted cash flows, forecasted revenue, terminal growth rates or the cost of capital used in the fair value estimates, we may be required to record an additional impairment of goodwill at a future date.

Leidos Holdings, Inc.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In the fourth quarter of fiscal 2024, 2023 and 2022, we performed a qualitative analysis for certain reporting units which determined that it was more likely than not that the fair values of these reporting units were in excess of the individual reporting units’ carrying values.

INTANGIBLE ASSETS

Intangible assets, net consisted of the following:

January 3, 2025 December 29, 2023

January 2, 2026 January 3, 2025

(in millions)

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Customer relationships 53 ( 34 ) 19 52 ( 28 ) 24

12 ( 7 ) 5 — — —

Total finite-lived intangible assets 2,077 ( 1,619 ) 458 1,999 ( 1,486 ) 513

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(in millions)

2025 December 29,

2026 January 3,

Computers and other equipment $ 474 $ 473

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ROU assets and lease liabilities consisted of the following:

(in millions)

Balance sheet line item January 3,

2025 December 29,

(in millions) Balance sheet line item January 2,

2026 January 3,

Finance leases Property, plant and equipment, net $ 50 $ 69

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We used discounted cash flow models to estimate the fair values of the affected assets and as a result, we recorded impairments of ROU and other assets in the amount of $ 5 million and $ 11 million for fiscal 2025 and 2024, respectively.

The impairment charges were allocated across our reportable segments and to Corporate.

The impairment charges were recorded across our reportable segments.

In fiscal 2024, we took occupancy of our newly constructed facility in San Diego, CA.

As a result we recorded $ 117 million of ROU assets and $ 169 million of lease liabilities.

In fiscal 2022, the Company entered into a Master Lease Agreement whereby we agreed to lease two aircraft from the time each aircraft is accepted through June 30, 2027.

In March 2023, we took possession of both aircraft and recognized a $ 64 million finance lease obligation and a corresponding ROU asset.

Leidos Holdings, Inc.

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Total lease cost for the periods presented consisted of the following:

(in millions)

2025 December 29,

(in millions) January 2,

2026 January 3,

2025 December 29,

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Lease terms and discount rates related to leases were as follows:

2025 December 29,

2026 January 3,

2025 December 29,

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Other information related to leases was as follows:

(in millions)

2025 December 29,

(in millions) January 2,

2026 January 3,

2025 December 29,

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Operating lease liabilities 69 236 97

The change in operating ROU assets and lease liabilities are presented within cash flows from operations on the consolidated statements of cash flows.

Leidos Holdings, Inc.

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Lease liability as of January 2, 2026 $ 54 $ 694

As of January 3, 2025, and December 29, 2023, we had a total net investment in sales-type leases, which relates to lease payment receivables, of $ 94 million and $ 100 million, respectively.

As of January 2, 2026, and January 3, 2025, we had a total net investment in sales-type leases, which relates to lease payment receivables, of $ 79 million and $ 94 million, respectively.

The current and non-current portions of net investment in sales-type leases are included within “Other current assets” and “Other long-term assets”, respectively, on the consolidated balance sheets.

The components of lease income were as follows:

(in millions)

Statement of operations line item January 3,

2025 December 29,

(in millions) Statement of operations line item January 2,

2026 January 3,

2025 December 29,

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Fiscal Year Ending (in millions)

Sales-type leases Operating leases

Sales-type leases Operating-type leases

2026 $ 43 $ 2

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Note 11—Fair Value Measurements

Financial instruments measured on a recurring basis at fair value consisted of the following:

January 3, 2025 December 29, 2023

(in millions)

Carrying value Fair value Carrying value Fair value

Financial assets:

Derivatives $ 4 $ 4 $ 11 $ 11

As of January 3, 2025, and December 29, 2023, our derivatives primarily consisted of the cash flow interest rate swaps on $ 500 million of the variable rate senior unsecured term loan (see “Note 12—Derivative Instruments”).

The fair value of the cash flow interest rate swaps is determined based on observed values for underlying interest rates on the one-month Secured Overnight Financing Rate ("SOFR") rate as of January 3, 2025, and December 29, 2023 (Level 2 inputs).

As of January 3, 2025, our derivatives primarily consisted of the cash flow interest rate swaps on $ 500 million of the variable rate senior unsecured term loan (see “Note 12—Derivative Instruments”).

The carrying value and fair value of our cash flow interest rate swap was $ 4 million.

The fair value of the cash flow interest rate swaps was determined based on observed values for underlying interest rates on the one-month Secured Overnight Financing Rate ("SOFR") rate as of January 3, 2025 (Level 2 inputs).

The $ 500 million interest rate swaps matured in August 2025.

Financial instruments measured on a recurring basis at fair value also include our defined benefit plan assets (Level 2 inputs).

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The carrying amounts of our financial instruments, other than derivatives, which include cash equivalents, accounts receivable, accounts payable and accrued expenses, are reasonable estimates of their related fair values.

The carrying value of our notes receivable of $ 16 million and $ 12 million as of January 3, 2025, and December 29, 2023, respectively, approximates fair value as the stated interest rates within the agreements are consistent with the current market rates used in notes with similar terms in the market (Level 2 inputs).

The carrying value of our notes receivable of $ 15 million and $ 16 million as of January 2, 2026, and January 3, 2025, respectively, approximates fair value as the stated interest rates within the agreements are consistent with the current market rates used in notes with similar terms in the market (Level 2 inputs).

Our notes receivable are included within “Other current assets” and "Other long-term assets" on the consolidated balance sheets.

As of January 3, 2025, and December 29, 2023, the fair value of debt was $ 4.5 billion and $ 4.6 billion, respectively, and the carrying amount was $ 4.7 billion for both periods (see “Note 13—Debt”).

As of January 2, 2026, and January 3, 2025, the fair value of debt was $ 4.7 billion and $ 4.5 billion, respectively, and the carrying amount was $ 4.6 billion and $ 4.7 billion, respectively (see “Note 13—Debt”).

The fair value of debt is determined based on current interest rates available for debt with terms and maturities similar to our existing debt arrangements (Level 2 inputs).

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The fair value of the SES reporting unit was determined using Level 3 inputs.

As of January 3, 2025, and December 29, 2023, we did not have any assets or liabilities measured at fair value on a non- recurring basis.

On May 23, 2025, the assets and liabilities acquired in connection with the Kudu Dynamics acquisition were measured at fair value on a non-recurring basis using Level 3 inputs (see "Note 5—Acquisitions and Divestitures").

Note 12—Derivative Instruments

The fair value of the interest rate swaps was as follows:

(in millions)

Balance sheet line item January 3,

2025 December 29,

(in millions) Balance sheet line item January 2,

2026 January 3,

Cash flow interest rate swaps Other current assets

(1) As of December 29, 2023, the cash flow interest rate swaps were reported in the "other long-term assets" on the consolidated balance sheet.

The cash flows associated with the interest rate swaps are classified as operating activities in the consolidated statements of cash flows.

CASH FLOW HEDGES

As of January 3, 2025, we had 2.96 % fixed interest rate swap agreements to hedge the cash flows of $ 500 million of the variable rate senior unsecured term loan (the “Variable Rate Loan”).

The objective of these instruments was to reduce variability in the forecasted interest payments of the Variable Rate Loan.

Under the terms of the interest rate swap agreements, we received monthly variable interest payments based on the one-month SOFR and paid interest at a fixed rate.

These interest rate swap agreements matured in August 2025.

The interest rate swap transactions were accounted for as cash flow hedges.

The gain/loss on the swaps was reported as a component of other comprehensive income (loss) and was reclassified into earnings when the interest payments on the underlying hedged items impacted earnings.

A qualitative assessment of hedge effectiveness was performed on a quarterly basis.

Leidos Holdings, Inc.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CASH FLOW HEDGES

We have interest rate swap agreements to hedge the cash flows of $ 500 million of the variable rate senior unsecured term loan (the “Variable Rate Loan”).

These interest rate swap agreements have a maturity date of August 2025 and a fixed interest rate of 2.96 %.

The objective of these instruments is to reduce variability in the forecasted interest payments of the Variable Rate Loan.

The interest rate swap transactions are accounted for as cash flow hedges.

The gain/loss on the swaps is reported as a component of other comprehensive income (loss) and is reclassified into earnings when the interest payments on the underlying hedged items impact earnings.

A qualitative assessment of hedge effectiveness is performed on a quarterly basis, unless facts and circumstances indicate the hedge may no longer be highly effective.

The effect of the cash flow hedges on other comprehensive income (loss) and earnings for the periods presented was as follows:

(in millions)

2025 December 29,

(in millions) January 2,

2026 January 3,

2025 December 29,

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Amount recognized in other comprehensive income 1 5 6

Amount reclassified from accumulated other comprehensive income (loss) to interest expense, net ( 11 ) ( 15 ) 11

We expect to reclassify net gains of $ 3 million from accumulated other comprehensive loss into earnings during the next 12 months.

Amount reclassified from accumulated other comprehensive loss to interest expense, net ( 4 ) ( 11 ) ( 15 )

Debt consisted of the following:

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interest rate Effective

interest rate January 3, 2025 December 29, 2023

interest rate January 2, 2026 January 3, 2025

Senior unsecured term loan:

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2.30 % 2.38 % 1,000 1,000

$ 500 million notes, due March 2032

5.40 % 5.42 % 500 —

$ 250 million notes, due July 2032

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5.50 % 5.88 % 161 161

$ 500 million notes, due March 2035

5.50 % 5.55 % 500 —

$ 300 million notes, due December 2040

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Total long-term debt 4,648 4,670

current portion ( 618 ) ( 18 )

Less current portion ( 20 ) ( 618 )

Total long-term debt, net of current portion $ 4,628 $ 4,052

REVOLVING CREDIT FACILITY

We have a $ 1.0 billion senior unsecured revolving facility (the “Revolving Facility”).

The Revolving Facility will mature in March 2028 and is subject to an annual commitment fee rate of 0.125 % on the unused credit availability and permits two additional one-year extensions subject to lender consent.

Principal payments are made quarterly, with the majority of the principal due at maturity.

As of January 2, 2026, and January 3, 2025, there were no borrowings outstanding under the Revolving Facility.

On February 20, 2025, we issued and sold $ 500 million senior notes maturing in March 2032 (the "2032 Notes") and $ 500 million senior notes maturing in March 2035 (the "2035 Notes", and together with the 2032 Notes, the "Notes").

The Notes are senior unsecured obligations issued by Leidos, Inc.

and guaranteed by Leidos Holdings, Inc.

The annual interest rates for the 2032 Notes and the 2035 Notes are 5.40 % and 5.50 %, respectively, and the interest is payable on a semi-annual basis.

In connection with the issuance of the Notes, $ 10 million of debt issuance costs and discount were recognized, which were recorded as an offset against the carrying value of debt.

The proceeds from the Notes were used to retire the $ 500 million

Leidos Holdings, Inc.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

TERM LOANS AND REVOLVING CREDIT FACILITY

On March 10, 2023 (the “Closing Date”), we entered into a Credit Agreement (the “Credit Agreement”) with certain financial institutions, which provided for a senior unsecured term loan facility in an aggregate principal amount of $ 1.0 billion (the “Term Loan Facility”) and a $ 1.0 billion senior unsecured revolving facility (the “Revolving Facility” and, together with the Term Loan Facility, the “Credit Facilities”).

The Credit Facilities will mature in March 2028.

The Revolving Facility permits two additional one-year extensions subject to lender consent.

As of January 3, 2025, and December 29, 2023, there were no borrowings outstanding under the Revolving Facility.

The proceeds of the Term Loan Facility and cash on hand on the Closing Date were used to repay in full all indebtedness, terminate all commitments and discharge all guarantees existing in connection with a predecessor $ 1.9 billion senior unsecured term loan facility and a $ 750 million senior unsecured revolving facility.

Borrowings under the Credit Agreement bear interest at a rate determined, at our option, based on either an alternate base rate or a Term SOFR rate with a 0.10 %, per annum Term SOFR adjustment, plus, in each case, an applicable margin that varies depending on our credit rating.

The applicable margin range for Term SOFR-denominated borrowings is from 1.00 % to 1.50 %.

Based on our current ratings, the applicable margin for Term SOFR-denominated borrowings is 1.25 %.

Principal payments are made quarterly on the Term Loan Facility beginning in March 2025, with the majority of the principal due at maturity.

Interest on the Term Loan Facility for Term SOFR-denominated borrowings is payable on a periodic basis, which must be at least quarterly.

In fiscal 2023, we issued and sold $ 750 million aggregate principal amount of fixed-rate senior notes (the “Notes”) maturing in March 2033.

The Notes are senior unsecured obligations issued by Leidos, Inc.

and guaranteed by Leidos Holdings, Inc.

The annual interest rate for the Notes is 5.75 % and is payable on a semi-annual basis.

In connection with the issuance of the Notes, $ 11 million of debt issuance costs and debt discounts were recognized, which were recorded as an offset against the carrying value of debt.

The proceeds from the Notes were used to repay all of the outstanding obligations in respect of principal, interest and fees on the $ 500 million 2.95 % notes, due May 2023, and repay $ 210 million of the outstanding balance on the predecessor $ 1.9 billion senior unsecured term loan facility, due January 2025, and fund general corporate purposes.

senior unsecured notes due May 2025 and repurchase $ 500 million outstanding shares of common stock in connection with the Accelerated Share Repurchase ("ASR") agreement (see "Note 16—Earnings Per Share").

COMMERCIAL PAPER

We have a commercial paper program in which the Company may issue short-term unsecured commercial paper notes (“Commercial Paper Notes”) not to exceed $ 1.0 billion.

We have a commercial paper program in which the Company may issue short-term unsecured commercial paper notes (“Commercial Paper Notes”).

The proceeds will be used for general corporate purposes, including working capital, capital expenditures, acquisitions and share repurchases.

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The Commercial Paper Notes will bear either a stated or floating interest rate, if interest bearing, or will be sold at a discount from the face amount.

As of January 3, 2025, and December 29, 2023, we did not have any Commercial Paper Notes outstanding.

The Credit Facilities, Commercial Paper Notes, senior unsecured notes are fully and unconditionally guaranteed and contain certain customary restrictive covenants, including among other things, restrictions on our ability to create liens and enter into sale and leaseback transactions under certain circumstances.

As of January 2, 2026, and January 3, 2025, we did not have any Commercial Paper Notes outstanding.

The senior unsecured term loan, senior unsecured notes and Revolving Facility are fully and unconditionally guaranteed and contain certain customary restrictive covenants, including among other things, restrictions on our ability to create liens and enter into sale and leaseback transactions under certain circumstances.

The financial covenants in the Credit Agreement require that we maintain, as of the last day of each fiscal quarter, a ratio of adjusted consolidated total debt to consolidated EBITDA of not more than 3.75 to 1.00, subject to increases to 4.50 to 1.00 for four fiscal quarters following a material acquisition, and a ratio of EBITDA to consolidated interest expense of not less than 3.50 to 1.00.

We were in compliance with all covenants as of January 2, 2026.

Leidos Holdings, Inc.

Annual Report

LEIDOS HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PRINCIPAL PAYMENTS

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Total long-term debt $ 4,648

Leidos Holdings, Inc.

Annual Report

LEIDOS HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 14—Accumulated Other Comprehensive Income (Loss)

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Reclassification from AOCI — ( 11 ) — ( 11 )

Balance at December 29, 2023 ( 39 ) 5 ( 14 ) ( 48 )

Balance at January 3, 2025 ( 98 ) 1 ( 13 ) ( 110 )

Other comprehensive income (loss) 74 1 ( 3 ) 72

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Balance Sheets (in millions)

2025 December 29,

2026 January 3,

Other current assets:

Transition costs and project assets (1)

Fulfillment costs and project assets (1)

Other long-term assets:

Transition costs and project assets (1)

Long-term deferred tax assets 203 102

Fulfillment costs and project assets (1)

Accounts payable and accrued liabilities:

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Accrued vacation

Salaries, bonuses and amounts withheld from employees’ compensation 445 315

(1) During the year ended January 3, 2025, and December 29, 2023, $ 328 million and $ 417 million, respectively, of amortization was recognized related to transition costs and project assets.

Accrued bonuses

Salaries and amounts withheld from employees’ compensation

(1) For the year ended January 2, 2026, and January 3, 2025, $ 346 million and $ 328 million, respectively, of amortization was recognized related to fulfillment costs and project assets.

(2) Balance represents items that are not individually significant to disclose separately.

Note 16—Earnings Per Share (“EPS”)

(3) For the year ended January 2, 2026, we disaggregated "Deferred tax assets" from "Other long-term assets" on the consolidated balance sheets.

As a result, the prior year activity has been reclassified to conform with the current year presentation.

(4) For the year ended January 3, 2025, we recast "Accounts payable and accrued liabilities" on the consolidated balance sheets to reflect a change in accounting policy (see "Note 3—Summary of Significant Accounting Policies").

Note 16—Earnings Per Share

Basic EPS is computed by dividing net income attributable to Leidos common stockholders by the basic weighted average number of shares outstanding.

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These stock awards are dilutive common share equivalents subject to the treasury stock method.

Leidos Holdings, Inc.

Annual Report

LEIDOS HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The weighted average number of shares used to compute basic and diluted EPS attributable to Leidos stockholders were:

(in millions)

2025 December 29,

2026 January 3,

2025 December 29,

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Anti-dilutive stock-based awards are excluded from the weighted average number of shares outstanding used to compute diluted EPS.

The total number of outstanding stock options and vesting stock awards that were anti-dilutive was less than 0.5 million for fiscal 2024 and 1 million for both fiscal 2023 and 2022.

Leidos Holdings, Inc.

Annual Report

LEIDOS HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The total number of outstanding stock options and vesting stock awards that were anti-dilutive was less than 0.5 million for both fiscal 2025 and 2024, and was 1 million for fiscal 2023.

SHARE REPURCHASES

During fiscal 2024 and 2023, we made open market repurchases of our common stock for an aggregate purchase price of $ 850 million and $ 225 million, respectively.

There were no open market share repurchases in fiscal 2022.

In fiscal 2022, we entered into an Accelerated Share Repurchase agreement with a financial institution to repurchase shares of our outstanding common stock.

During fiscal 2025, 2024 and 2023, we made open market repurchases of our common stock for an aggregate purchase price of $ 400 million, $ 850 million, and $ 225 million, respectively.

All repurchased shares were immediately retired.

In fiscal 2025, we entered into an ASR agreement with a financial institution to repurchase shares of our outstanding common stock.

We paid $ 500 million to the financial institution and received 3.6 million shares.

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As of January 2, 2026, we had stock-based compensation awards outstanding under the following plans:

the 2017 Omnibus Incentive Plan, the 2006 Equity Incentive Plan, as amended, and the 2006 Employee Stock Purchase Plan, as amended (“ESPP”).

the 2017 Omnibus Incentive Plan and the 2006 Employee Stock Purchase Plan, as amended (“ESPP”).

We issue new shares upon the vesting of stock units or exercising of stock options under these plans.

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We grant service-based awards that generally vest or become exercisable 33 % a year over three years , 25 % a year over four years or cliff vest in three years .

As of January 3, 2025, 2.9 million shares of Leidos’ stock were reserved for future issuance under the 2017 Omnibus Incentive Plan and the 2006 Equity Incentive Plan.

As of January 2, 2026, 2.7 million shares of Leidos’ stock were reserved for future issuance under the 2017 Omnibus Incentive Plan.

We offer eligible employees the opportunity to defer restricted stock units into an equity-based deferred equity compensation plan, the Key Executive Stock Deferral Plan (“KESDP”).

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All awards under the MSCP are fully vested and the plan does not provide for a maximum number of shares available for future issuance.

Our ESPP allows eligible employees to purchase shares of Leidos’ stock at a discount of up to 15 % of the fair market value on the date of purchase.

Our ESPP allows eligible employees to purchase shares of Leidos’ stock at a discount on the date of purchase.

During fiscal 2025, 2024 and 2023, the discount was 10 % of the fair market value on the date of purchase.

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A total of 1.5 million shares remain available for future issuance under the ESPP.

Leidos Holdings, Inc.

Annual Report

LEIDOS HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock-based compensation and related tax benefits recognized under all plans were as follows:

(in millions)

2025 December 29,

2026 January 3,

2025 December 29,

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During fiscal 2025, 2024 and 2023, we used a blended approach to measure expected volatility that is based on our weighted average historical and implied volatility.

Leidos Holdings, Inc.

Annual Report

LEIDOS HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The risk-free rate is derived using the yield curve of a zero-coupon U.S.

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The weighted average grant-date fair value and assumptions used to determine fair value of stock options granted for the periods presented were as follows:

2025 December 29,

2026 January 3,

2025 December 29,

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Dividend yield 1.1 % 1.3 % 1.4 %

Leidos Holdings, Inc.

Annual Report

LEIDOS HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock option activity for each of the periods presented was as follows:

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Options exercised ( 0.8 ) 80.93 43

Outstanding at December 29, 2023 1.9 $ 86.22 3.7 $ 41

Outstanding at January 3, 2025 1.2 $ 97.53 3.9 $ 58

Options granted 0.3 134.00

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Restricted stock units and awards activity for each of the periods presented was as follows:

(in millions)

Shares of stock

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date fair value

(in millions)

Unvested stock awards at December 30, 2022 1.3 $ 98.52

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Awards vested ( 0.6 ) 94.94

Unvested stock awards at December 29, 2023 1.4 $ 97.71

Unvested stock awards at January 3, 2025 1.2 $ 111.43

Awards granted 0.6 139.50

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Also, during fiscal 2025, 2024 and 2023, we granted performance-based awards with market conditions.

These market conditions grants represent the target number of shares and the actual number of shares to be awarded upon vesting may be higher or lower depending upon the achievement of the relevant market conditions.

The target number of shares granted under the market conditions grants will vest and the stock will be issued at the end of a three-year period based on the attainment of certain total shareholder return performance measures and the employee’s continued service through the vest date.

These market condition awards provide for a target number of shares, with the actual number of shares issued upon vesting determined based on the achievement of applicable market conditions.

The awards vest at the end of a three-year performance period based on specified total shareholder return performance measures and the employees continued service through the vesting date.

Leidos Holdings, Inc.

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Performance-based stock award activity for each of the periods presented was as follows:

(in millions)

Expected number

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date fair value

(in millions)

Unvested at December 30, 2022 0.5 $ 106.70

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Awards vested ( 0.2 ) 88.81

Unvested at December 29, 2023 0.6 $ 102.22

Unvested at January 3, 2025 0.4 $ 123.89

Awards granted 0.2 146.36

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The Monte Carlo simulation assumptions used for the periods presented were as follows:

2025 December 29,

2026 January 3,

2025 December 29,

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(in millions) January 2,

2025 December 29,

2026 January 3,

2025 December 29,

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Total $ 447 $ 388 $ 195

A reconciliation of the provision for income taxes to the amount computed by applying the statutory federal income tax rate to income before income taxes for the periods presented was as follows:

(in millions)

2025 December 29,

Below is the rate reconciliation pursuant to the disclosure requirements of ASU 2023-09, which represents the reconciliation of the provision for income taxes to the amount computed by applying the statutory federal income tax rate to income before income taxes for the periods presented:

(dollars in millions) January 2,

federal statutory tax rate

State and local income taxes, net of federal income tax effect (1)

Foreign tax effects

Effect of cross-border tax laws

Research and development tax credits ( 22 ) ( 1.2 )

Other ( 1 ) —

Changes in valuation allowances

Nontaxable or nondeductible items

( 2 ) ( 0.1 )

Changes in unrecognized tax benefits

Other adjustments

( 3 ) ( 0.1 )

Effective tax rate

(1) State taxes in VA and MD made up the majority (greater than 50 percent) of the tax effect in this category.

Leidos Holdings, Inc.

Annual Report

LEIDOS HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The company has elected to adopt the provisions of ASU 2023-09 on a prospective basis beginning fiscal 2025 as shown above, the rate reconciliation for the periods prior to the adoption of ASU 2023-09, were as follows:

(dollars in millions)

2025 December 29,

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Effective income tax rate 23.7 % 48.4 %

The effective tax rate for fiscal 2024 was favorably impacted primarily by federal research tax credits and lower state income taxes, partially offset by an increase in unrecognized tax benefits.

The effective tax rate for fiscal 2023 was unfavorably impacted primarily by non tax deductible goodwill impairments and fiscal 2022 was favorably impacted primarily by federal research tax credits and excess tax benefits related to employee stock-based payment transactions.

The decrease to the effective tax rate for fiscal 2025 compared to fiscal 2024 was primarily due to a decrease in unrecognized tax benefits, partially offset by the impacts from cross-border taxes resulting from the H.R.1 Reconciliation Act, commonly referred to as the One Big Beautiful Bill Act (“OBBBA”).

The decrease in the effective tax rate for fiscal 2024 compared to fiscal 2023 was due to non tax deductible goodwill impairments unfavorably impacting fiscal 2023.

Leidos Holdings, Inc.

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(in millions) January 2,

2025 December 29,

2026 January 3,

Capitalized research and development $ 39 $ 370

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Property, plant and equipment ( 84 ) ( 98 )

Deferred revenue — ( 3 )

Other ( 12 ) ( 7 )

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Net deferred tax assets $ ( 173 ) $ 201

At January 3, 2025, we had state net operating losses of $ 70 million, which we expect to utilize.

On July 4, 2025, the OBBBA implemented several corporate tax law changes, including but not limited to, (1) restoring the ability to immediately expense U.S.

research and development costs;

(2) allowing certain taxpayers an election to deduct the unamortized balance of U.S.

research and development costs capitalized in prior years;

and (3) reinstating one hundred percent bonus depreciation for eligible property.

Based upon our interpretation of the law as currently enacted, income taxes payable and net deferred taxes were $ 265 million and $ 230 million, respectively, lower at fiscal 2025, than our estimates prior to the OBBBA enactment.

As of fiscal 2025, we had state net operating losses of $ 95 million, which we expect to utilize.

The losses will begin to expire in fiscal 2034.

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We expect to utilize $ 3 million of the foreign tax credits.

We also had foreign net operating losses of $ 57 million, which do not expire.

We expect to utilize $ 30 million of the foreign net operating losses.

Income tax balance sheet items are included in the accompanying consolidated balance sheets as follows:

(in millions)

2025 December 29,

Other current assets:

Prepaid income taxes and tax refunds receivable $ 86 $ 40

Other long-term assets:

Deferred tax assets $ 203 $ 102

Accounts payable and accrued liabilities:

Income taxes payable $ 21 $ 3

Other long-term liabilities:

Deferred tax liabilities $ 2 $ 3

Unrecognized tax benefits $ 162 $ 114

We also had foreign net operating losses of $ 32 million, which will not expire and expect to utilize $ 8 million of the foreign net operating losses.

The income tax payments, net of refunds, by jurisdiction as of January 2, 2026 were as follows:

(in millions) Income Tax Payments Income Tax Refunds Total

federal $ 181 $ ( 2 ) $ 179

state & local:

Virginia 32 — 32

Other state & local 59 ( 10 ) 49

Australia 16 ( 1 ) 15

Other foreign 13 ( 12 ) 1

Total $ 301 $ ( 25 ) $ 276

Leidos Holdings, Inc.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unrecognized tax benefits are primarily related to certain recurring deductions customary for our industry.

The changes in the unrecognized tax benefits were as follows:

(in millions) January 2,

2025 December 29,

2026 January 3,

2025 December 29,

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Unrecognized tax benefits that, if recognized, would affect the effective income tax rate $ 90 $ 57 $ 15

At January 3, 2025, December 29, 2023, and December 30, 2022, the balance of unrecognized tax benefits included liabilities for uncertain tax positions of $ 173 million, $ 110 million and $ 92 million, respectively.

At January 3, 2025, $ 17 million of the balance of unrecognized tax benefits was classified as accounts payable and accrued liabilities, and $ 156 million was classified as other long-term liabilities on the consolidated balance sheets.

At December 29, 2023, and December 30, 2022, the balance of the unrecognized tax benefits were classified as other long-term liabilities on the consolidated balance sheets.

For fiscal 2024, unrecognized tax benefits decreased $ 16 million for tax positions related to prior years, primarily as a result of resolving uncertainty regarding capitalized research and development costs with the IRS for the tax year ended December 30, 2022, partially offset by an increase in uncertain state tax positions.

In addition, unrecognized tax benefits increased $ 80 million for tax positions related to the current year, primarily as a result of capitalized research and development costs.

At January 3, 2025, and December 29, 2023, accrued interest and penalties totaled $ 7 million and $ 4 million, respectively.

At December 30, 2022, accrued interest and penalties were immaterial.

For fiscal 2024 and 2023, $ 7 million and $ 4 million respectively, of interest and penalties were recognized in the Company’s consolidated statements of operations.

As of fiscal 2025 and 2023, unrecognized tax benefits were included within "Other long-term liabilities" on the consolidated balance sheets.

As of fiscal 2024, $ 17 million of unrecognized tax benefits were included within "Accounts payable and accrued liabilities," and $ 156 million was included within "Other long-term liabilities" on the consolidated balance sheets.

For fiscal 2025, unrecognized tax benefits decreased $ 92 million for tax positions related to prior years, primarily as a result of uncertainty regarding capitalized research and development costs for the tax years ended fiscal 2023 and fiscal 2024, partially offset by an increase in uncertain state tax positions.

In addition, unrecognized tax benefits increased $ 18 million for tax positions related to the current year, primarily as a result of uncertain state tax positions.

We file income tax returns in the United States and various state and foreign jurisdictions.

For the years ended December 30, 2022, December 29, 2023, and January 3, 2025, we are participating in the Internal Revenue Service (“IRS”) Compliance Assurance Process (“CAP”), a real-time audit of our consolidated federal corporate income tax returns.

The IRS has completed their examination of our consolidated federal income tax returns through the year ended December 31, 2021.

For the years ended January 1, 2021, and December 31, 2021, we were selected to participate in the phase of CAP reserved for taxpayers whose risk of noncompliance does not warrant use of IRS resources.

For the years ended fiscal 2025, 2024 and 2023, we are participating in the Internal Revenue Service (“IRS”) Compliance Assurance Process (“CAP”), a real-time audit of our consolidated federal corporate income tax returns.

The IRS has completed their examination of our consolidated federal income tax returns through the year ended fiscal 2022.

We believe that participation in CAP should reduce tax-related uncertainties, if any.

Additionally, with a few exceptions, as of January 3, 2025, we were no longer subject to state, local, or foreign examinations by the tax authorities for fiscal years ended on or before January 1, 2021.

During the next 12 months, we expect our balance of unrecognized tax benefits to decrease by $ 73 million primarily related to capitalized research and development costs.

As of fiscal 2025, we were no longer subject to state, local, or foreign examinations by the tax authorities for fiscal years ended on or before December 30, 2021, except in certain limited cases.

While we believe we have adequate accruals for uncertain tax positions, the tax authorities may determine that we owe taxes in excess of recorded accruals or the recorded accruals may be in excess of the final settlement amounts agreed to by tax authorities.

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Company contributions were $ 197 million, $ 159 million and $ 148 million for fiscal 2025, 2024 and 2023, respectively.

Leidos Holdings, Inc.

Annual Report

LEIDOS HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DEFERRED COMPENSATION PLANS

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Participants may allocate deferred salary and cash bonus amounts into a variety of designated investment options, with gains and losses based on the elected investment option performance with the participant assuming all risks related to future returns of their contributions.

Under the KESDP, eligible participants may elect to defer in share units all or a portion of certain cash bonuses and restricted stock unit awards granted under the previous 2006 Equity Incentive Plan and the current 2017 Omnibus Incentive Plan (see “Note 17—Stock-Based Compensation”).

Leidos Holdings, Inc.

Annual Report

LEIDOS HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Under the KESDP, eligible participants may elect to defer in share units all or a portion of certain cash bonuses and restricted stock unit awards granted under the current 2017 Omnibus Incentive Plan (see “Note 17—Stock-Based Compensation”).

Under the MSCP, restricted stock share units are fully vested and no further deferrals into the plan are made.

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DEFINED BENEFIT PLANS

We sponsor two frozen defined benefit pension plans (“the Defined Benefit Plans”), one in the United Kingdom (“UK”) for former employees on an expired customer contract and another assumed as a result of the Gibbs & Cox acquisition.

We sponsor two frozen defined benefit pension plans (“the Defined Benefit Plans”), one in the United Kingdom (“UK”) and another in the United States ("U.S.").

On May 20, 2022, the trustee of our UK defined benefit pension plan (the “Plan”) invested the assets of the Plan in a bulk purchase annuity policy to fully insure the benefits payable to the members of the Plan.

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The bulk purchase annuity policy is structured to enable the Plan to move to a full buy-out, at which time the insurer would become directly responsible for all pension payments and we would be relieved of our obligations under the Plan.

At this future date, a settlement loss will be recognized for an amount equal to any unamortized loss associated with the Plan recorded within AOCI and any remaining net plan assets of the Plan will be remitted to the Company.

As of January 3, 2025, and December 29, 2023, the unamortized loss within AOCI related to the Plan was $ 20 million and $ 21 million, respectively.

As of January 3, 2025, and December 29, 2023, the Plan had net assets of $ 7 million and $ 8 million, respectively.

The projected benefit obligation of the Defined Benefit Plans as of January 3, 2025, and December 29, 2023, was $ 88 million and $ 99 million, respectively.

The decrease in the projected benefit obligation was primarily due to assumption changes.

The fair value of the Defined Benefit Plans assets as of January 3, 2025, and December 29, 2023, was $ 94 million and $ 103 million, respectively.

The decrease was primarily driven by assumption changes to reflect the fair value of the annuity contract.

The UK Plan funding status was overfunded $ 7 million and $ 8 million as of January 3, 2025, and December 29, 2023, respectively.

The Gibbs & Cox defined benefit pension plan funding status was underfunded $ 1 million and $ 4 million as of January 3, 2025, and December 29, 2023, respectively.

The fair value of the the Defined Benefit Plans' assets has been included within “Other long-term liabilities” and "Other long-term assets" on the consolidated balance sheets.

As of January 2, 2026, and January 3, 2025, the unamortized loss within AOCI related to the Plan was $ 22 million and $ 20 million, respectively.

As of January 2, 2026, and January 3, 2025, the Plan had net assets of $ 6 million and $ 7 million, respectively.

On February 11, 2026, the Plan completed a full buy-out and recognized a settlement loss related to the unamortized loss previously recorded within AOCI.

Any remaining net plan assets of the Plan will be remitted to the Company upon completion of the settlement process.

The projected benefit obligation of the Defined Benefit Plans as of January 2, 2026, and January 3, 2025, was $ 89 million and $ 88 million, respectively.

The fair value of the Defined Benefit Plans assets as of January 2, 2026, and January 3, 2025, was $ 94 million.

The UK Plan funding status was overfunded by $ 6 million and $ 7 million as of January 2, 2026, and January 3, 2025, respectively, and the U.S.

benefit pension plan was underfunded by $ 1 million as of January 2, 2026, and January 3, 2025.

The underfunded and overfunded positions of the Defined Benefit Plans' assets have been included within “Other long-term liabilities” and "Other long-term assets," respectively, on the consolidated balance sheets.

We also sponsor multiemployer defined benefit pension plans and defined contribution plans (401(k) plans) (the “Sponsored Plans”) for employees working on two U.S.

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Since we are not responsible for the current or future funded status of the pension plans, no assets or liabilities arising from their funded status are recorded in the consolidated financial statements and no amounts associated with these pension plans are included in the defined benefit plan disclosures above.

Leidos Holdings, Inc.

Annual Report

LEIDOS HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 20—Business Segments

Our operations and reportable segments are organized around the customers and markets we serve.

We define our reportable segments based on the way the CODM, currently the Chief Executive Officer, manages the operations for purposes of allocating resources and assessing performance.

We define our reportable segments based on the way the chief operating decision maker ("CODM"), currently the Chief Executive Officer, manages the operations for purposes of allocating resources and assessing performance.

The CODM considers segment revenue and operating income to assist with the evaluation of strategic business decisions, including potential acquisitions or divestitures, whether to invest in certain products or services, share repurchases and the declaration of dividends.

Beginning in fiscal 2024, we realigned our business to report in six operating segments, which are aggregated into four reportable segments in accordance with the criteria established under ASC 280:

Our business is aligned into six operating segments, which are aggregated into four reportable segments in accordance with the criteria established under ASC 280, Segment Reporting:

National Security & Digital, Health & Civil, Commercial & International and Defense Systems.

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Additionally, we separately present the unallocated costs associated with corporate functions as Corporate.

As a result of this change, prior year segment results have been recast to reflect the current reportable segment structure.

Our National Security & Digital business provides leading-edge and technologically advanced services, solutions and products, as well as mission software capabilities for defense and intelligence customers in the areas of cyber, logistics, security operations and decision analytics.

We also deliver IT operations and digital transformation programs across all U.S.

Our National Security & Digital business provides leading-edge and technologically advanced services, solutions and products across substantially all U.S.

federal government customers.

Our advanced capabilities include the delivery of technology-enabled services, mission software capabilities and IT modernization services.

Our capabilities allow us to provide innovative technology solutions in software development, engineering & design, modeling & simulation, analytics, cyber security, intelligence analysis, linguistics and mission operations.

Our advanced capabilities allow us to provide technology-enabled services, software capabilities and IT modernization.

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Our Health & Civil business provides services and solutions to federal and commercial customers in the areas of public health, care coordination, life and environmental sciences and transportation.

We are dedicated to delivering effective and affordable solutions that are responsible for the health and well-being of people, including service members and veterans.

Our core capabilities include health information management services, managed health services, systems and infrastructure modernization, and life sciences research and development.

We help customers achieve their missions and take on the connected world with data-driven insights, improved efficiencies and technological advantages.

Our Commercial & International business delivers a portfolio of products, services, and solutions aimed at securing national assets, modernizing energy and critical infrastructure, and enhancing mission outcomes.

Our key customers include Investor-Owned Utilities, government agencies in the United Kingdom and Australia, the Transportation Security Administration, U.S.

Customs & Border Protection, as well as airports and ports and borders authorities.

We offer a broad range of capabilities, including design and engineering services, security products and solutions, digital modernization, mission software, logistics, and airborne solutions.

Our Defense Systems business addresses threats facing our nation by rapidly prototyping and delivering advanced hardware, software, and integrated systems solutions for the U.S.

Department of Defense, Army, Navy, Air Force, Space Force, Marine Corps, United States Special Operations Command, NASA, Defense Advanced Research Projects Agency, intelligence agencies, and international customers.

We are heavily engaged in the top defense Research Development Test and Evaluation priorities that are driven by critical evolving threat-driven needs.

Defense Systems provides services in the air, land, sea, space and cyberspace environments.

The Defense Systems business is dedicated to delivering cost-effective solutions in the space, airborne, land, maritime and cyber domains and supporting critical missions worldwide.

Customs & Border Protection ("CBP"), as well as airports and ports and borders authorities.

Our Defense Systems business addresses threats facing our nation by rapidly prototyping and delivering advanced hardware, software, and integrated systems solutions for the DoW, Army, Navy, Air Force, Space Force, Marine Corps, United States Special Operations Command, Defense Advanced Research Projects Agency and intelligence agencies.

We are heavily engaged in the top defense Research Development Test and Evaluation priorities that are driven by evolving global threats.

This business is dedicated to delivering cost-effective solutions and services in the space, airborne, land and maritime domains and supporting critical missions worldwide.

Corporate includes the operations of various corporate activities, certain corporate expense items that are not reimbursed by our U.S.

government customers and certain other expense items excluded from a reportable segment’s performance.

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The following table summarizes business segment information for the periods presented:

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Total operating income $ 2,109

Year Ended December 29, 2023

Year Ended January 3, 2025

(in millions) National Security & Digital Health & Civil Commercial & International Defense Systems Total

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Other segment expense 4,688 2,942 1,711 1,462 10,803

Segment operating income (loss) $ 672 $ 574 $ ( 560 ) $ 65 $ 751

Segment operating income

$ 720 $ 1,095 $ 104 $ 94 $ 2,013

Corporate expense

Total operating income $ 1,827

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Year Ended December 29, 2023

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Other segment expense 4,639 2,730 2,263 1,357 10,989

Segment operating income $ 606 $ 448 $ 131 $ 11 $ 1,196

Segment operating income (loss)

$ 672 $ 574 $ ( 560 ) $ 65 $ 751

Corporate expense

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The Health & Civil and Defense Systems segments also include equity earnings of non-consolidated subsidiaries within operating income.

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government Cost Accounting Standards, indirect costs including depreciation expense are collected in indirect cost pools, which are then collectively allocated out to the reportable segments based on a representative causal or beneficial relationship of the costs in the pool to the costs in the base.

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Asset information by segment is not a key measure of performance used by the CODM.

We generated approximately 87 % of our total revenues in both fiscal 2024 and 2023, and 86 % in fiscal 2022 from contracts with the U.S.

We generated approximately 87 % of our total revenues in fiscal 2025, 2024 and 2023 from contracts with the U.S.

government, either as a prime contractor or a subcontractor to other contractors engaged in work for the U.S.

Revenues under contracts with the DoD and U.S.

Intelligence Community, including subcontracts under which the DoD or the U.S.

Intelligence Community is the ultimate purchaser, represented approximately 48 % of our total revenues for fiscal 2024 and 49 % of total revenues for fiscal 2023 and 44 % of total revenues for fiscal 2022.

Revenues under contracts with the DoW and U.S.

Intelligence Community, including subcontracts under which the DoW or the U.S.

Intelligence Community is the ultimate purchaser, represented approximately 49 % of our total revenues for both fiscal 2025 and 2023, and 48 % for fiscal 2024.

Revenues generated by entities outside of the United States were approximately 8 % in both fiscal 2025 and 2024, and 9 % in fiscal 2023.

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Adverse findings could have a material effect on our business, financial position, results of operations and cash flows due to our reliance on government contracts.

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Defense Contract Audit Agency

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Other Government Investigations and Reviews

Through its internal processes, the Company discovered, in late 2021, activities by its employees, third party representatives and subcontractors, raising concerns related to a portion of our business that conducts international operations.

The Company conducted an internal investigation, overseen by an independent committee of the Board of Directors, with the assistance of external legal counsel, to determine whether the identified conduct may have violated the Company’s Code of Conduct and potentially applicable laws, including the U.S.

Foreign Corrupt Practices Act.

The Company voluntarily self-reported this investigation to the Department of Justice and the Securities and Exchange Commission and cooperated with both agencies.

In December 2024, the Company received notification from the U.S.

Department of Justice that it had closed its inquiry.

While the Company has engaged with the SEC, the Company cannot anticipate the timing, outcome or possible impact of an SEC investigation, although violations of applicable laws may result in civil sanctions, including monetary penalties, and reputational damage.

In February 2023, a former employee of the Company who was terminated at the outset of the investigation was indicted on wire fraud and other charges by a Federal Grand Jury in the U.S.

District Court in the Southern District of California.

These charges were later dismissed as a result of the death of the former employee.

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In August 2022, the Company received a Federal Grand Jury Subpoena in connection with a criminal investigation being conducted by the U.S.

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2031 and thereafter 5

Note 22—Subsequent Events

On January 23, 2026, ("Signing Date"), Leidos, Inc.

entered into a stock purchase agreement with KENE Holdings, L.P.

and KENE Parent Inc.

("Entrust") to acquire all of the shares of Entrust for a purchase price of $ 2.4 billion in cash, subject to customary adjustments for Entrust’s cash, debt, transaction expenses and net working capital.

Entrust is a professional engineering company providing professional engineering and design, consulting, data analytics, project management and automation services.

We believe this acquisition will strengthen our core competencies within the Commercial & International business segment.

The transaction is expected to close in the first half of fiscal 2026, subject to the satisfaction or waiver of customary closing conditions.

DEBT FINANCING

In connection with the acquisition of Entrust, we entered into an agreement with Citigroup Global Markets Inc.

("Citi"), which provides for a senior unsecured 364 -day bridge loan facility in an aggregate principal amount of $ 1.4 billion (the "Bridge Facility").

The Bridge Facility will mature 364 days after the Signing Date.

Borrowings under the Bridge Facility bear interest at a rate determined, at the Company's option, based on either an alternate base rate or an adjusted term SOFR rate, plus an applicable margin.

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REVOLVING CREDIT FACILITY

On February 12, 2026 (the “Closing Date”), we amended and restated our existing senior unsecured revolving credit facility to increase the borrowing capacity from $ 1.0 billion to $ 1.5 billion.

The amended revolving credit facility will mature five years from the Closing Date and permits two additional one-year extensions subject to lender consent.

Borrowings under the revolving credit facility will bear interest at a rate determined, at the Company's option, based on either an alternate base rate or term SOFR rate, plus an applicable margin.

SEGMENT REALIGNMENT

Beginning in fiscal 2026, we will operate in four reportable segments that are focused on specific, defined capability sets we bring to our customers.

The four reportable segments will be Intelligence & Digital, Health, Homeland and Defense.

We will also separately present the unallocable costs associated with corporate functions as Corporate.

All historical segment financial information will be recast to conform to the new reportable segment structure in our financial statements and accompanying notes, beginning in the first quarter of fiscal 2026.

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Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data